Posted by Ray on August 8, 2011 under Main | 
I had made a prediction last year, found HERE, that US Treasuries would be put on negative watch by Fitch and downgraded to junk by China. Well, I was wrong as it was S&P who made the call and actually did downgrade the US to AA+ which is still a joke as the government will never be able to actually repay much of the $14T it has outstanding without just printing money, which IS a form of default. China is now saber rattling about the US dollar again, but this time they are serious, I think at least, asking for a new reserve currency and I think they will get what they want as other countries have raised the same concerns.
The US deserved to be downgraded and we should be downgraded much further than AA+ as we will not get serious about debt reduction. To prove my point all we have to do is look at how the debate is structured. The politicians are all talking about annual deficits and NOT the outstanding debt load. They do all sorts of double talk to make sure the average person only believes we have a trillion or o in outstanding debt, but that trillion is just the annual deficit and no one talks about the big number of $14T in outstanding current liabilities. S&P gets it and that is why they are the first one to downgrade the US.
When the downgrade happened the Treasury Department acted quickly calling the move unjustified, political, terrible lapse of judgment, S&P made a mistake, and these are the same people who rated junk bonds AAA to begin with. While it is easy to criticize S&P for their prior actions, but relative to its sovereign debt ratings those arguments hold no water and anyone with a stitch of unbiased rationale realizes that the US is indeed in big trouble and we do not deserve a AAA rating. The worst part about this downgrade is the fact that the government is now baring down on S&P about this downgrade.
It was just announced that the Senate Banking Committee will be looking into the downgrade. While we do not know if hearings will happen or not the person close to the matter did say all options are on the table. I was under the impression that Congress wanted independent ratings agencies along with an independent Federal Reserve. Silly me I guess as the minute a ratings agency does the right thing they try to crush it with Senate investigations, but the Federal Reserve can monetize trillions in US debt without Congress blinking an eye, unreal.
What Congress is saying is be independent as long as you do what we say and want and if you decide to think for yourself, well, we will hunt you down and skin you alive. The government is acting very much like the old Soviet Union and is sending a message, not matter what we do keep us rated AAA. How can a ratings agency offer an independent review of a security if the government demands that it gets what it wants regardless of what the facts are? It is insane to think that the ratings agencies will remain independent if Congress has investigations if the US is downgraded. Frankly, this is extortion, blackmail or a combination of the two since the government is the one who issues S&P with its ratings license. Will S&P lose its license over this? I do not know, but it is possible and shameful if that is what happens.
As an American you should be angry over the downgrade, but not at S&P. You should be angry at the people who rubberstamps every bill that comes along wasting billions of dollars. You should be angry at their inability to work with each other and address the seriously obvious structural issues that will consume immense amounts of capital in the coming years. You should be angry that the Senate wants to investigate S&P while saying other quasi government agencies are left alone even though they are part of the problem. You should be angry that Alan Greenspan, Mishkin, Bernanke and every other clown out there says the US will never default because we can print our own money to pay the debt, devaluation IS a default.
You should NOT be mad at S&P and you should demand that Congress work on real problems because their lack of dealing with those problems is exactly why S&P downgraded them to begin with. We are not showing the world that we are capable of fixing any real problems. What we are showing the world is that if we do not get our way we will simply create problems were none exists and threaten the “trouble maker” with depriving them of their livelihood or by throwing them in jail. Way to go America.
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Tags: big trouble, debt load, debt ratings, debt reduction, default, Investigation, judgment, junk bonds, politicians, printing money, reserve currency, S&P downgrade, senate banking committee, sovereign debt, treasuries, treasury department
Posted by Ray on February 28, 2010 under Politics |
As I conduct my regular daily readings of various blogs and news sites I cannot help to get a very uneasy feeling brewing out there. The negativity is running very high in the political realm and from those who report on economic events. I keep seeing tag lines like; “expect more social unrest” when people report on things like the Berkley protests, which are disturbingly violent I might add. When I hit my favorite Libertarian blogs the feeling is more uneasy as I keep seeing words like revolution being used.
When you add in the Washington factor where our elected leaders are going to hammer unpopular legislation through, with no compromise, it makes me even more uneasy. There is no doubt that we need to make painful decisions in order to get our fiscal house in order, but that usually means less spending, not more. Unfortunately, our current political leaders do not see it that way and are hammering through more spending, in particular the health care reform bill. Look, I know we need to do something, but not this. Deducting money from Medicare and then adding it back in to other areas is not rational, this bill is not paid for and will make costs rise not fall.
Regardless, people are not happy about unpopular legislation being thrown down their thoughts. The kicker is that people like Nancy Pelosi come out and say that programs like Social Security and Medicare were unpopular when they were enacted. I guess what she means is that politicians know what is best for Americans and we should keep our mouths shut. We all know how right politicians are their track record speaks for itself just look at the stellar decisions they made over the last 10 years. Iraq was a great decision, the prescription drug coverage was fantastic (albeit unpaid for), the PATRIOT Act was a winner, free speech zones were fantastic, how many stimulus bills did we have again – they worked out well, eliminating a paper trail for voting is a sure disaster waiting to happen, and need I go on?
Politicians do not know what is good for Americans, they know what is good for them and getting reelected. Well, they did used to know how to get elected until now. If they pass this next unpopular batch of legislative nightmare on the docket they are in for a rude awakening come November because the people are coming for them. My only hope is that people come for them at the polls and not in any other way. Based on what I have read combined with the recent plane crash in Texas into the IRS building I think we might see more people going out to make a statement. Meaning, some nut job will more than likely blow something up or worse.
Who knows what will happen in the future, but we know that the average person feels left out right now. Wall Street got their massive bonuses and, for them, nothing really changed with the exception of having to play defense in the media. At the end of the day, the average person knows they got nothing over the past 2 years except for a higher future tax bill and, maybe, they got to keep their job, but we know about 20% of Americans were not so lucky as they are either unemployed or underemployed. Wall Street though, they are fine. Washington, well, they are doing OK as well as campaign contributions, from Wall Street, are still coming in and many have received raises. Clearly, there is a double standard and John Edwards was completely right when he said there are 2 Americas.
Discontent is here and that discontent could become a powder keg if not rectified. The unfortunate thing is I do not see how the public can be pacified, especially as this thing we are in deepens as we are now seeing. Things could get ugly and politicians need to figure out that they are representing the people and start acting that way. It is beyond me how they cannot see that Americans view them as being on the wrong path, but, again, that is politics and they will be surprised if they get voted out in November.
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Tags: free speech, health care reform, medicare, Nancy Pelosi, patriot act, political leaders, politicians, protests, social security and medicare, social unrest, stimulus
Posted by Ray on September 26, 2009 under Main |
According to Harry Schultz and many tin foil hat wearers on the internet there will be a currency collapse and embassies should stock up on local currencies to last at least a year. This led to rumors of bank holidays and runs on the banks and other far out there rumors. Are these just paranoid people trying to conjure up publicity or is there any truth behind these strange stories.
I have to say that it is possible that some of these stories hold water, scary right? As you may know the Fed has had a huge currency swap program that has corresponded with the sudden strength and weakness of the USD which is quickly unwinding and may lead to new lows in the USD. That could lead to new lows in the USD and potentially start a currency crisis and, as I have said many times before, the Fed is unwilling to defend the dollar. However, it is unlikely that that alone will cause a complete collapse of the currency. It would take the foreign buyers of our debt to sit out of a few auctions, we would call these treasury auctions ‘failed’ auctions, along with new lows in the USD to trigger a collapse on our currency. I would say this has a probability of 65% of actually happening, it is there, but not a certainty.
What I think is more realistic is an actual bank run in the near future, I know here comes the tin foil hat. I want you to really think about what I am about to say, because it is all true. The FDIC is basically broke, really, it is. By my estimations it has just 4-6 billion in cash left and that is assuming it has not had to make good on any of the loss-share agreements in place. We are at our limit as far as the amount of debt the US is allowed to issue, hence the pending vote to raise the debt ceiling to $13 trillion dollars, which I have signed a petition against, in the effort of giving full disclosure.
So, if we have another few institutions go belly up over the next few weeks, which we will, and the new bailout for medium to smaller banks is not approved by treasury and the debt ceiling is not raised the FDIC will be officially insolvent. I put forth the idea that the only reason banks did not go under last year is because we knew the FDIC was there to guarantee our deposits. Now if the FDIC was suddenly incapable of providing that guarantee, would Americans really keep their money in the bank? No way. That would lead to a bank run like we have never seen before.
Thanks to our wonderful fractional reserve banking system all banks would then be in trouble when depositors pulled money from institutions. We should also face the fact that we should not even have the FDIC as it encourages banks to assume more risk and it encourages depositors to ignore how much risk their banks take, just my personal belief, but if you think about it there is validity to that thought. I do believe this is a very real possibility in the near future unless the debt ceiling is raised or the TARP bailout is designed for small institutions, which I am against.
If this bank run happens, which is possible, but unlikely, then it will be a much bigger problem than you think. It will force all cash loans to be called in. If you recall your history this was the cause of the 1929 stock market crash and the very beginning of the Great Depression. However, unlike 1929 the leverage we have today is much larger than back then which means the losses will be much, much worse. I contend it will make last year look like good times. Leverage is not our friend and leverage is the reason why we saw everything decline, including gold which usually goes up during times of trouble, but when you have hedge funds buying on 30 times leverage then they sell everything including gold.
A bank run is possible this year and I think a much bigger threat than a currency collapse. Actually, I think we are in a double edged sword situation because raising the debt ceiling will not help the dollar either which could lead to a currency collapse down the road, but nevertheless the banking system is still the biggest problem America faces in the near-term. This is not some conspiracy theory nonsense, but real life issues that are coming to fruition and that have to be dealt with. The only reason the Fed is pulling any of the stimulus is because we are so close to the debt ceiling. Of course, you have not heard about reaching the debt ceiling because the media is too busy talking about other nonsense issues.
My guess is that at the first sign of a major bank run we will have a bank holiday to sort out the problem. This would involve a recapitalization of the FDIC and probably some emergency action taken to restore faith in the banking system. However, no matter what they do, it is merely postponing the inevitable because we are a debtor nation who has to borrow trillions every year and we have a declining tax base. We will never be able to dig ourselves out of this hole because we do not have the political strength to do so nor do we have the assets either. Keep liquid, keep money around the house, buy physical gold and silver, I really like silver, and do your own homework, but I think you will find even I am soft peddling the news to you.
ha
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